Dan River files for Chapter 11; aaiPharma bonds slide, loans gyrates on delay, default, downgrade

By Paul Deckelman and Sara Rosenberg

New York, March 31 - Dan River Inc. became the latest troubled textile maker to seek protection from its junk bond holders and other creditors on Wednesday, filing for Chapter 11 status with the U.S. Bankruptcy Court for the Northern District of Georgia. The Danville, Va.-based maker of sheets, comforters and other bedding products cited the intense competition from lower-cost foreign rivals, whose flood of soft goods into the U.S. has caused the once formidable American textile industry to virtually unravel.

Elsewhere, the bonds of troubled pharmaceuticals maker aaiPharma Inc. slid sharply and its bank debt was heard to have bounced around in the mid-90s after the Wilmington, N.C. -based drugmaker announced that it would not be able to file its 10-K annual report with the Securities and Exchange Commission - which put it in default on its revolving credit facility and caused ratings agencies to downgrade its debt.

Dan River, in filing for bankruptcy protection, joins fellow U.S. textile makers such as WestPoint Stevens Corp., Pillowtex Corp., Cone Mills Corp. and Burlington Industries Inc., although the company's statement bravely declared that "the strength of our operations and our ability to generate positive cash flow distinguish Dan River from other companies in our industry that have gone through this process and failed."

It said that it had lined up debtor-in-possession financing of up to $145 million.

A trader in distressed bonds said that Dan River's 12¾% notes due 2009, which had previously traded around 26 bid, 28 offered with accrued interest, traded down. Although he had heard bids as low as 10, he said nobody hit those bids and "there was no trading anywhere below 20," before the credit finally finished at 21 bid, 23 offered, now trading flat, or without accrued interest, amounting to an additional loss of several points in the bonds' real value beyond the nominal price drop.

Another observer quoted the Dan River bonds at 23 bid, flat, down from 27, with interest, previously. The company's over-the-counter traded shares, already trading in penny stock territory, lost a third of what little value they have left, swooning 13 cents (32.5%) to end at 27 cents on volume of 1.5 million shares.

Dan River becomes the third notable company to duck under the bankruptcy umbrella this week, following Haynes International Inc., which did so on Monday, and FiberMark Inc., which filed on Tuesday. A fourth filer Wednesday, Bush Industries, Inc., only has bank debt outstanding.

FiberMark firms, Haynes eases

A trader saw FiberMark's 10¾% notes due 2011 "actually improve" a day after the Brattleboro, Vt.-based fiber products maker's bankruptcy filing, firming to 56 bid, 57 offered, trading without interest, from 55 bid, without interest, on Tuesday

And he saw Haynes' 11 5/8% notes, scheduled to mature in September, fall back from the levels they held on Tuesday, when the Kokomo, Ind.-based metal alloys maker's bonds had been as high as a 66-67, flat, context. He said that the bonds had fallen back from those highs to intraday depths as low as 60-61 before ending at 63 bid, 65 offering, flat - up from the day's lows, but still down about three points on the session. However, he saw no news out on the company.

aaiPharma volatile

There certainly was news out on aaiPharma, whose bank debt was quoted around mid-90's bid, looking for offerings by late in the day Wednesday.

A trader said that was basically in the same area as previous levels of 95 bid, 97 offered, despite the news of a default and a ratings downgrade.

"The bonds checked off and then rebounded," the trader said. "The [bank debt] was kind of in a similar context. I'm hearing low bids out there [for the bank debt] but no offers down there. "

Bond traders, however, saw more volatile movement in the company's 11% notes due 2010, which had shot up into the high 80s on Tuesday in apparent response to news that the company's founder was coming back to run the show as aaiPharma struggles with apparently irregular sales figures for the second half of last year.

All of those gains went for naught Wednesday, as the bonds fell sharply - one trader reported them down in the mid-70s, intraday - before settling in around an 80-81 bid context - really about where they had been before all of the volatility began on Tuesday.

Late Tuesday - well after the market had closed - the company announced that it will not be able to file its 10-K report with the Securities and Exchange Commission within the 15-day extension because of the continued work of its internal investigating committee, putting it in default on its senior secured credit facility.

As a result, lenders have informed the company that it will now be barred from making any borrowings under its $100 million revolver

Furthermore, lenders have the right to block the drugmaker from making a scheduled $9.6 million interest payment on the 11% notes that is due Thursday. aaiPharma said that it is working with its lenders to develop a plan that would allow the interest payment to be made by April 30.

The delay in filing the 10-K springs from the internal sales-figure investigation, which was announced on March 1; the company cited "unusual sales" in two product lines - the pain-killer Darvocet and Brethine, an asthma drug - during the second half of 2003.

In reaction to this news, Standard & Poor's downgraded the company's ratings including its senior secured debt rating to CCC+ from BB- and its subordinated debt rating to CC from B-. The ratings remain on CreditWatch, with negative implications, where they were originally placed on March 19, 2003.

Standard & Poor's said it has "significant concerns regarding the company's short-term liquidity," especially given the $9.6 million interest payment. As of Dec. 31, 2003, the company had only roughly $9 million of cash on hand, and cash flows from operations have likely been minimal in 2004, given the lowered sales prospects of aaiPharma's product portfolio, the rating agency said.

"In the wake of the loss of access to its $100 million revolver under its senior secured credit facility, aaiPharma is currently negotiating for a new short-term credit facility. AaiPharma also plans to close the sale of its M.V.I./Aquasol product to Mayne Group Ltd. for roughly $100 million by June 2004. A timely sale is essential, as aaiPharma faces a $31 million product rights payment in August 2004," the rating agency added.

Other distressed names heard Wednesday including UAL Corp., unchanged at 13.5 bid, 14 offered, and Parmalat Finanvzaria SpA, whose 6 5/8% notes due 2008 still languish around 14 bid, traders said.

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